More than two years in, and companies around the world are still learning how to…
Member Benefits own CEO, Chip Trefry, had the pleasure of sitting down with hosts Christine Bilbrey and Jonathon Israel of The Florida Bar Podcast recently about year-end insurance planning for law firms. (Listen to the full audio podcast.)
Standard Opening: [00:00:03] Welcome to The Florida Bar Podcast where we highlight the latest trends in law office and law practice management to help you run your law firm. Brought to you by The Florida Bar’s Practice Resource Institute. You’re listening to Legal Talk Network.
Christine Bilbrey: [00:00:26] Hello, and welcome to The Florida Bar Podcast brought to you by The Practice Resource Institute on Legal Talk Network. We’re so glad you’re joining us. This is Christine Bilbrey I’m a Practice Management Adviser at PRI and one of the hosts for today’s show which is being recorded from our offices in Tallahassee, Florida.
Jonathon Israel: [00:00:43] Hello, and I’m Jonathon Israel the Director of the Bar’s Practice Resource Institute. Our goal at PRI is to assist Florida attorneys with running the business side of their law practices. We’ll be focusing on a different topic each month and we’ll carry the theme through our newsletter, website with related tech tips and articles.
Christine Bilbrey: [00:01:00] So, this month at PRI our topic is year-end planning and joining us today is Chip Trefry. Chip is the founder and CEO of Member Benefits Inc. It’s a little bit confusing because at The Florida Bar we have The Florida Bar Member Benefits and Chip’s company is a member benefit. He graduated from the University of Florida in 1972 and has spent most of his career specializing in helping professionals with their insurance and planning needs. Welcome to the show, Chip.
Chip Trefry: [00:01:27] Thank you. My pleasure.
Christine Bilbrey: [00:01:29] So Chip, please tell our listeners a little about yourself and your company, Member Benefits.
Chip Trefry: [00:01:34] Well, as you said, we’ve been doing this, professionals, for close to 40 years now and we try and work with the smaller law firms, CPA firms, and medical practices who through the associations that their members are. Our longest standing client is The Florida Bar for almost 30 years and we also have the State Bar of Texas, The Missouri Bar, and the State Bar of Georgia as clients.[We] have somewhere in the neighborhood of 15 to 18 thousand law firms that seek their advice in regards to benefits to our company.
Jonathon Israel: [00:02:16] So, Chip, as some of these solo and small firms again to kind of wrap up their year-ends and look forward to the next year, what are some things they should be considering in regards to their insurance coverage as they start to plan out the next year for?
Chip Trefry: [00:02:28] Well, of course, the 800-lb gorilla is the health insurance problem that everybody’s facing today and the increasing costs and proportionately the smaller the firm gets, the bigger the problem is. So, therefore, that’s why we work with an awful lot of the two, three, four-person type law firms and even the sole proprietors— those that have no employees. Their biggest problem is that the carriers have exited the market— many, many of them have exited the market, especially on the individual major medical policies, and there’s also been some significant increases in the cost of the insurance— particularly on the individual major medical. But that’s probably the biggest issue that law firms face at the end of the year is most of them have renewal dates of January, so, they’re starting to look in November at which carrier they might need to move to, if their carrier exited, or what plan they might need to consider for themselves and their employees, what deductibles they ought to consider; and interestingly, there are some new solutions in the market. One of them is called “level-funding,” which can go all the way down to with several carriers offer this product. It’s kind of like a self-insured option for very small law firms where you can actually store reserves. If your firm has a successful year and the claims are low, those reserves then can be used the following year to either increase your benefits take lower deductibles and lower copays without additional cost or they can use it to stabilize the premium. And that’s become very popular. We’ve done quite a few of those for firms [of] anywhere between three, four employees up to 50 employees.
Chip Trefry: [00:04:32] And when you get into the above 50 space, you can start looking at some options of fully self-insured risk involved in the fully self-insured plans, versus the no risk on the level-funding. And then last is what most firms are used to having presented to them, is the fully-insured options and the fully-insured, is just the normal premium versus benefits. If your experience is bad it’s not going to affect, necessarily, your firm if you’re in the under fifty marketplace because the rates are controlled so there’s no real rewards in having a good year. There is incentive from the insurer, the health insurance carriers, to try and motivate employers to incent their employees to become more healthy for many reasons; one, it drives down the cost of the health insurance and also increases productivity in regards to their coming to work and being more productive. Other considerations on the year-end are disability income- look and see if your incomes have increased on yourself and your employees. Do you have the proper amount of disability insurance to ensure a disability? It should be determined first how much non-can individual DI policies that can, if you have the proper documentation, be paid for by the law firm. It can be an expense to the firm and it’s the first step in disability planning. Do you have the proper amount of non-can and secondarily, go and look at the amount of group health insurance that you might purchase in the firm to see if you want to insure anywhere between 60, between the two products, up to as much as 100 percent of your income.
Christine Bilbrey: [00:06:30] So, if a solo or very small firm comes to you through The Florida Bar are you able to get them better rates than if they just went out on their own to sign up for a policy?
Chip Trefry: [00:06:41] Yes, we do. We have a group policy with Guardian through The Florida Bar, that say, it’s a very inexpensive option for an individual to purchase whether they’re a small firm and they purchase it just for themselves, or they work for a large firm that doesn’t offer disability insurance and it’s also an alternative to purchasing an individual non-can policy in the open market which is about three times more expensive.
Christine Bilbrey: [00:07:12] And is there a set enrollment period if someone’s coming to you? Do they have to come during certain months to get it to start in January or, can someone come mid-year and decide to add health benefits for their employees?
Chip Trefry: [00:07:25] Yes and no. If you’re purchasing an individual major medical policy because you’re a very small firm, firm of one would say, then there’s the Open Enrollment, which starts this week, and you have that period of time where the enrollment carriers have to take you. During the rest of the year if there’s a life event that occurs, like you lost your job, so, therefore, you lost your group insurance; you got married; you move to a different location— and there’s several more events that can take place called “life events” which will cause the carriers to have to sell you a health insurance policy. For the group insurance policies, for the larger firms five or more employees, they’re going to almost always buy a group policy. One policy insures all the members of the firm. There’s no real enrollment period for that. It’s just that most firms do renew at the end of the year— December 31st January 1st start date.
Jonathon Israel: [00:08:33] And you said for that there’s five or more employees— is there are set limit, a minimum, that they need to have in order to get the group rates.
Jonathon Israel: [00:08:40] The five, is typically where you’re not going to see a firm of five or more buying individual major medical policies but no, it can go down to, I believe, two in the state of Florida. I know it’s two in Texas. In Florida— I believe it’s two.
Jonathon Israel: [00:08:55] And are there tax benefits that these small firms are seeing by offering the insurance for their employees that they’re going to get some extra benefits for it?
Chip Trefry: [00:09:04] Well, that’s interesting because the executive order that just came out, if it goes through, will allow employers to purchase individual major medical policies or individuals to purchase it, and expense it where there’s limits on that currently, if you buy an individual major medical policy— and let me explain that “individual” means the policy’s issued to the insured; “group” is issued to the company— the firm. The group benefits are always deductible to the firm, the cost of the insurance, and on the individual side, the executive order that President Trump put out a couple of weeks ago will have the premiums treated the same on individuals as for group, once that’s been enacted. In regards to the question earlier on how many employees you have to have to get a group policy in Florida, it’s the same as Texas— that’s two.
Jonathon Israel: [00:10:01] And in Florida, are you required to offer insurance to your employees?
Chip Trefry: [00:10:04] No, lots of firms that just buy an individual policy for themselves. If they’re a lawyer and they might have a secretary, hopefully she’s covered somewhere else, but it’s not mandatory that you offer insurance to your employees.
Christine Bilbrey: [00:10:20] And what if their only employee is a spouse or family member? Is that a consideration when they’re looking into plans that they qualify for?
Christine Bilbrey: [00:10:26] Yeah, in Florida the spouse will not count as an employee. They still have to have another employee. So the spouse, if they have another employee, then they qualify for group coverage and then the spouse would be covered, if they truly are an employee, as an employee or they could be covered as a spouse/spousal rider because at the end of the day, you’ve got to have [an] employee working for you in order to qualify for the group insurance.
Jonathon Israel: [00:10:59] Sure makes sense.
Chip Trefry: [00:11:01] It’s interesting that the trend now has gone from individual major medical policies, that were significantly less expensive approximately four or five years ago, and now what’s happened is the individual major medical policies have become more expensive than the group on average. So, there’s a big trend for small employers to try and qualify for group insurance so that they can reduce their costs.
Jonathon Israel: [00:11:29] And then in regards to some of the other insurance areas you know, as far as professional liability [insurance] or other coverages that a firm should be looking at at the end of the year, what’s your advice to them, as they review those policies?
Chip Trefry: [00:11:41] Well, I’ll just pick a few areas that should be looked at. One is, of course, professional liability is always a big issue and most attorneys have professional liability, particularly those that are forced to have it by their clients. There’s Cyber Insurance now that’s becoming a big concern in the industry, and there’s programs out there where you can test your firm for a risk assessment to determine how vulnerable you might be to a cyber attack, or to be “hacked” as they call it or “black screened” where somebody comes in and just shuts all your systems down. So, those are typically very inexpensive and sometimes free where you can have your self-assessed. The ultimate goal of those companies that are offering those services, of course, are to ultimately have the firm purchase Cyber Insurance to cover the liabilities that exist because of somebody hacking you. The program will offer on-going assessment where there’s those that will come in and make sure that you’re in compliance with the law and also offer an executive summary that will describe all the things that you need to do to improve your system. And then if you want the system, sometimes they’ll offer on-going monitoring and compliance.
Chip Trefry: [00:13:06] Some firms are subject to audits SOC audits, like we are as a TPA, and those audits are now getting much more particular about the cyber attack potential in asking for you to go and get certified that you’ve done everything you can to avoid that problem arising and that if you actually do have a cyber attack take place, that you’re adequately insured. The insurance will cover restoration of your system, liability breach when liability you might have caused to your clients for having that information breached, business interruption— you could be shut down for some period of time and loss of income so, the insurance should cover the business interruption. You might possibly have to have accounting— forensic accounting it covers that and then fines— regulatory fines. Those are the broad coverages that should be considered in a cyber policy.
Jonathon Israel: [00:14:10] And I think that there’s a big misconception out there with some of the small firms that their Professional Liability Insurance will just cover the cyber attacks. But you know, that’s not the case in some of these and especially as it comes to the restoration, like you’re talking about, and some the other areas that they really need to be paying attention to. The professional liability just doesn’t live up to having a separate Cyber Insurance policy out there as well.
Chip Trefry: [00:14:34] No, the studies that we’ve done for our bar clients around the country show that even the riders that are available that you can put on a professional liability policy still have very limited coverage. And firms will be surprised at how low the premium can be to go ahead and get full coverage for cyber— it can be as little as four or five hundred dollars a year to cover the firm up to as many as five employees.
Jonathon Israel: [00:14:59] It’s almost a no-brainer at that point.
Chip Trefry: [00:15:01] It is. The typical cost to have the assessment done can be as much as the insurance would be, in some cases. A lot of associations are now looking at endorsing cyber-type products. The Florida Bar’s done it and so has Texas.
Christine Bilbrey: [00:15:18] Is there a one size fits all? Like, if someone approaches your company to get Cyber Security Insurance and they really don’t know that much about it, are there different levels? Are there different products? Or, do you have people there that can guide them through to figure out what they need?
Chip Trefry: [00:15:32] We do, and it does make a difference in the size of the firm. We have two carriers. One would be for the small firm— up to somewhere in the neighborhood of 50 or 60 employees, and then once you get above that, is where we’re going to go to a different carrier. So yeah, there’s not a difference in the coverages, it’s a difference in the insurance company for the small firm and then the carrier for the large firm.
Christine Bilbrey: [00:15:59] So, what other kinds of insurance is your company offer? Can attorneys get dental or vision? Are there other things that they could look into with you?
Chip Trefry: [00:16:08] Yep. We have one area is 401k plans, which is one of my favorite areas to work in, it’s interesting to me that, you know, the 401k is a product that’s purchased by a firm when their income starts going up and sometimes they’ll start making some money, they’ll start their firm off, they’ll bring their employees in, [who] came from other firms, or they came from the firm they left from, or they’re just a start-up and they put in what would be called like a “Safe Harbor Basic 401k Plan”, where you can put up to 15 percent of your income into the plan and that satisfies the need immediately to hire and attract the type employees that you want in the firm. But ultimately, when the firm becomes more successful, the formula needs to be analyzed to see if it’s really maximizing what it can do for the partners. Then there’s what’s called a “Safe Harbor New Comparability Formula” that will skew more money toward the owners of the firms, that, of course, being the lawyers, and then ultimately, if there’s a real big need for tax deductions, and because the firm has now become extremely successful— in the marketing pieces that I’ve seen, we’re talking the 350 to 400 thousand dollar range for the owners, when they’ve hit that level they’re looking for something more than what a 401k profit share will offer, there’s what’s called a “defined benefit plan” and that’s where you can get well above the 50 to 55 thousand dollar a year deduction that you can put in the accounts of the owners in the profit sharing and you can go significantly higher than that in the defined benefit. That’s one area.
Christine Bilbrey: [00:18:00] And the 401k is that available to the very small firms? Say, three people, can they start a 401K plan there?
Chip Trefry: [00:18:07] Yes. Yes, they can. Absolutely.
Christine Bilbrey: [00:18:10] That’s excellent, and I think that that’s an area that’s overlooked, especially young attorneys because they think they can’t afford to do that yet. Do they have to put— is there a minimum amount that they have to go put into that 401k to start? Or, you know, what’s the threshold for them to get it started?
Chip Trefry: [00:18:23] No, there’s no minimums but you’ll see a firm, you know, let’s say, two partners and they get three or four employees with three, four, five employees, forty to fifty-five thousand dollar a year contribution for the for the whole firm. Probably about the lowest you’d want to start it off at. That’s including what the employees would put in because they can, of course, match and put their own money in the plan. It’s crucial that you pick a provider that does on-site enrollments rather than just having the employees go onto a website and learn about the plan because the websites are never going to excite them into putting their own money into it and if they don’t contribute, then the plan won’t work as efficiently as it will if the employees contribute.
Christine Bilbrey: [00:19:18] That makes sense.
Christine Bilbrey: [00:19:19] So, it looks like we’ve reached the end of our program, and I want to thank Chip Trefry for joining us today.
Chip Trefry: [00:19:25] Thank you.
Christine Bilbrey: [00:19:25] And Chip, if our listeners have questions and they want to follow up, how do they reach you and your company?
Chip Trefry: [00:19:31] They can go onto the Florida Bar website and look for The Florida Bar Member Benefits and they’ll see The Florida Bar Private Insurance Exchange and they can call in on that number.
Christine Bilbrey: [00:19:44] Great. Thank you, Chip. So, if you like what you’ve heard today please rate us in Apple Podcast. Join us next time for another episode of The Florida Bar Podcast brought to you by the Practice Resource Institute on Legal Talk Network. I’m Christine Bilbrey.
Jonathon Israel: [00:19:58] And I’m Jonathon Israel. Until next time thank you for listening.
Standard Closing: [00:20:03] Thanks for listening to The Florida Bar Podcast brought to you by The Florida Bar’s Practice Resource Institute and produced by the broadcast professionals at Legal Talk Network. If you’d like more information about today’s show, please visit LegalTalkNetwork.com. Subscribe via iTunes and RSS. Find The Florida Bar, The Florida Bar Practice Resource Institute, and Legal Talk Network on Twitter, Facebook, and LinkedIn or download the free app from Legal Talk Network in Google Play and iTunes. The views expressed by the participants of this program are their own and do not represent the views of, nor are they endorsed by, Legal Talk Network, its officers, directors, employees, agents, representatives, shareholders, and subsidiaries. None of the content should be considered legal advice. As always, consult a lawyer.
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